In autumn 2007, Christian Aid, together with Oxfam, Actionaid and the Jubliee Debt Campaign, called on its supporters to help persuade the World Bank to stop imposing free trade conditions on loans to cash-strapped nations.
Campaigners thought they had won the argument on ‘conditionality’ with the UK government in September 2006 when the then development secretary Hillary Benn withheld £50m of funding from the World Bank.
But the money was released just a few months later on the proviso that the Bank reported its steps toward eradicating conditionality by this November.
We need to keep up pressure on the UK government to ensure they keep the Bank to their word and remove these unjust clauses which inflict hardship on the world’s poor as events in Nicaragua illustrate.
Pulling the plug
Nicaragua is among the poor countries that have seen some of their debts written off. But debt relief never comes without strings attached.
In Nicaragua’s case one of the central conditions was to fully privatise its electricity sector.
Privatisation was rushed through. Instead of a serious debate about what form it should take, the World Bank advised the country to ensure it made the sector ‘as attractive as possible to foreign investors’.
As a result, the Nicaraguan government ended up selling off its assets on the cheap, granting a monopoly over electricity distribution to a Spanish multinational, and signing a contract heavily weighted in favour of the Spanish company.
No attention was paid to how the government might ensure efficiency, discipline the companies or champion the interests of consumers.
The results of this mismanagement are all too evident. Since 2006 the country has been in the grip of a severe energy crisis.
Blackouts are common, often with 12-hour power cuts daily. The generators blame the distributor for not paying them on time. The distributor says it can’t pay as it is making a loss.
Even the World Bank concedes that the arrival of private companies has not brought any significant investment to Nicaragua.
The cost to ordinary Nicaraguans
While the blame game continues, ordinary Nicaraguans suffer.
The blackouts have a huge impact on homes, the day-to-day running of essential services such as hospitals and the small businesses so needed for economic development.
Bakery owner Francisco Carvajal employs 30 people in one of the capital Managua’s poorest districts. He says losses are mounting as power cuts interrupt production.
So far Francisco has avoided laying off his workers but fears he may not be able to hold off for much longer.
Ironically, as services worsen, prices rise. Government-sanctioned increases have been accompanied by arbitrary charging practices, resulting in customers being over-billed or paying for services - such as street lighting - which are not being provided.
While customers – particularly the poor – suffer, the companies point to their losses and receive hefty government subsidies.
Christian Aid believes that the electricity sector simply cannot be run on a commercial basis in Nicaragua because the country’s people cannot afford to cover the costs of making it a profit-making enterprise. Even a cursory investigation by the World Bank should have revealed this before privatisation.
What next?
The Nicaragua experience shows the damage that ill-advised privatisations can cause.
In contrast to their promises to the UK government, the World Bank, however, is not learning from experience.
A package of privatisations is now on the table for Afghanistan. The Afghan finance ministry recently estimated that 14,550 employees – about half of the total – will be laid off in the imminent privatisation of state-owned enterprises.
Given the level of instability in the country, this seems a dangerous moment to undertake controversial, potentially damaging reforms.
What is the likelihood that the privatisations will be well designed and well regulated by the Afghan state?
Ahead of the autumn meetings of the World Bank and IMF, Christian Aid is calling on the UK government to ensure the practice of conditionality is finally brought to an end.